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Welcome to the Guernsey Finance podcast page.
Our podcasts bring you all the latest news and insight from Guernsey, the global finance specialist, as well as audio from some of our online events.
Brandon 00:03
Hello and welcome to the WE ARE GUERNSEY podcast where we bring you interviews with leaders from the global finance industry, as well as news and developments from Guernsey's financial services sector. My name is Brandon Ashplant and I am Senior Strategy and Technical Executive here at Guernsey Finance. Guernsey is a leading global finance centre. The success of the industry here is underpinned by economic substance political stability, and asset security and we are committed to the cause of sustainable finance. To find out more about Guernsey's success in sustainable finance, tune into our sister podcast, the Guernsey Green Finance Podcast. Today however, I am delighted to be joined by Darko Hajdukovic, Head of Platforms and Products at the London Stock Exchange Group. Prior to beginning his 15 year career with the LSE, Darko worked as a researcher with the European Commission and Staffordshire University. Darko holds a PhD from the Royal Holloway University of London. On this episode, we'll be discussing the state of the listings space given the state of the politics and the global macro economy, the rise of the voluntary carbon market and the LSE offering here, as well as what the future holds with new and innovative technologies coming to the fore. So without further ado, welcome Darko.
Darko 01:18
Thank you. Pleasure to be here.
Brandon 01:20
Great to have you on. So thanks for joining us. Firstly, just to kick things off, just tell me a bit about yourself and your career to date.
Darko 01:28
So I joined the London Stock Exchange that was the London Stock Exchange in 2007. And since then, we have become a London stock exchange group and the business has transformed considerably. However, the core of what we do, which is bringing those who need capitals with those who have capital, that really hasn't changed and in fact, kind of hasn't changed for the last couple of 100 years. So I work in our primary markets team, I'm responsible for our environment, for companies and funds and bonds, for the environment for them as they come to list, for products that we are building, and also for the services that we provide to our clients. And again, the number of those services has thanks to the group and the assets we have in the group has increased significantly.
Brandon 02:22
Excellent. So jumping straight into things, the first fund IPO in about nearly two years now is domiciled in Guernsey and if anything, this is proof I think of Guernsey's listings capabilities more than anything else, really. But do you think this could be the turning point after what has been quite a dry spell? How do you see the listing space developing in the short term future?
Darko 02:44
Yeah, so just putting funds half on the side of course last year was a very quiet year in terms of IPOs. But London remains a very attractive place to list. And it has had a lot of success in history. But also when you think about what underpins London today, the robust regulatory framework, the timezone, the connectivity of international players, all of these things remain at the heart of what we do. And yes, there were challenges last year, there were challenges all over the world. But when you think about Europe, London is by far the largest European by some margin, actually largest European financial centre by any metric, including the capital raising metric, because don't forget, even though there may have been less IPOs in terms of the form of capital raising, capital raising for companies that already are listed in the market has been steady and has been, it's really proven the public markets continue to support our assurance. Guernsey plays an important role. And it's an important destination where many of our investment funds, but also operating companies, I believe more than 70 investment funds are actually domiciled in Guernsey. Again, using that flexibility, but the robustness that's built within the Guernsey system. And I would also say when you look at, for example, a lot of, I believe there's about 30 companies also incorporated in Guernsey, but the majority are investment funds. If you look at that structure, it has been a robust structure that has proven ability to channel capital, and we can talk about that later, and especially talk about BCM. But over 60% of flow in any of those funds, was in alternatives. Now alternatives, I must say don't really like that name because it's not really alternative anymore. It's actually becoming very mainstream. So asset prices or infrastructure, real estate, royalties, renewables. These are the perfect vehicles that existed for well, only about 150 years. So as it comes to testing vehicles, these are the most tested ones we have for channeling capital into productive assets.
Brandon 05:17
Excellent. So, in recent years, we've sort of seen this explosive growth in renewables and focus on sustainability as of late, and in the last few years, actually, the concept of the carbon market has sort of come to the fore as well. For those less familiar with that space and that world, can you just describe to us what is a carbon market?
Darko 05:39
Well, just before I go into carbon market, let me just sort of frame this where this sits. So as you know, the UK has been a leading force behind a global movement to tackle climate change. And we have been the first exchange where companies have been asked to make public disclosures against the TCFD, which is an acronym for the task force on climate related financial disclosures, not a particularly catchy phrase, but a very important one, because it gives investors a very good handle on what companies are doing in terms of their meeting their climate change goals. So we were the first one there. We also have our sustainable bond market, which is one of the largest markets that attracts fixed income issuers and the volumes there are huge. Almost 150 billion Sterling was invested in sustainable projects through this market. So on the back of this success that we have had in in green financing, we have developed a concept of a voluntary carbon market. And the question that we had been asked there by the market is, what are we going to contribute to this as the London Stock Exchange? And of course, the natural answer would have been, well, we're going to create a carbon trading place. But we looked at the problem and we realised that is not the main problem. It's not about trading carbon credits, but generating carbon credits. So we went one step before and said, well, what if we have a market that will channel financing towards projects which will generate carbon credits, and that is the idea behind our voluntary carbon market. An investment fund that can be domiciled in Guernsey can raise capital and IPO, deploy it in projects all over the world, and instead of paying dividends or indeed in addition to paying dividends, offer carbon credits to their investors. And we think that corporates could be a very, very good investor, who then receive that steady stream of carbon credits.
Brandon 08:04
Brilliant. So the LSE, as you say, is very much the forefront of this space. And it's launched its carbon market last year. And this is just something that we actually discussed at length at Guernsey Sustainable Finance Week in September of last year. How do you think the LSE's offering actually compares with other global voluntary carbon markets out there?
Darko 08:26
Well, as I said it's completely unique, and it builds on the strength of the UK and our ecosystem. So other markets, really look at that trading component, how they're going to actually trade and exchange carbon credits. But when you look at actual carbon credits, as I said, the problem there is the lack of supply, so we we've tackled it from that perspective. And there we use something that is very unique to London, that is a very vibrant, closed-ended investment fund market, of which Guernsey is a very important constituent part. And that is where the real difference is between us and other places. We channel finance to those projects, those projects generate carbon credits, and you know, we shouldn't forget the normative tasks in front of us. There are net zero commitments that companies are making and they are approaching fast, they need carbon credits. And we will be there with a healthy supply of those carbon credits.
Brandon 09:29
And Foresight Sustainable Forestry were the first fund to be listed on the voluntary carbon market. And as I say, we were very pleased to welcome them at Sustainable Finance Week last year. What interest have you seen in voluntary carbon markets since its launch? Is it very popular or has it proved not as popular as you might have thought it would have been?
Darko 09:53
Well, it has proven very popular, and the amount of times I've heard: 'This is really interesting. I'm going to look into that,' you wouldn't believe. What we always want to emphasise is the carbon credits are not substitute for decarbonisation. So that's one thing to just get out there, straight. Everyone needs to decarbonise, and we appreciate that. But we also appreciate that if we're going to be truly net zero, and we have to be honest about it, it is impossible to completely decarbonise. So for those residual carbon credits, there will be dissolution. So there'll be a fund that is listed on the stock exchange under our rules, under the rules that will also govern the designation of a voluntary carbon market, and they actually sit within our Admission and Disclosure Standards. That gives confidence that investors will receive carbon credits that are going to be verified. And we have a list of agencies that can verify those carbon credits. So it gives that robustness, it also gives the ability to corporates or other investors to come in and out of their investment in the liquid market, because actually what they're holding is a share, not a carbon credits so they can buy more shares, or they can sell shares, depending on how they cover credit as demand changes. So, having said all that, we have been engaging with investors, with corporates and corporates are very, very interested. But one thing which I will also put in as a plea is that we need to move very quickly from we are interested, to we are doing this, because if you think of our targets, as I already said, many many investors, asset managers, have 2030 net zero targets, some have 2040, some have 2050. If you think about it, that's seven years from now. In order to be able to have carbon credits to be net zero by 2030, you need to put solutions in place today may that be nature based solutions, or other solutions, but they take time to generate carbon credits. And that's why urgency is really advised here.
Brandon 12:26
And and it sounds like this is something that the LSE does take seriously and is taking seriously. And that's great to see. I'd like to turn the conversation now to the future of the LSE and, particularly during what seems to be a period of unprecedented technological development with the likes of AI chatbots. We've seen more recently, the likes of chat, GPT and others, so forth. What role do you think these technologies and the rise of digitisation and digitalisation and actually the rise of automation will play in the LSE future functioning?
Darko 13:01
So digital assets and DLT have a really important role to play in the market. And I should make a distinction here, crypto isn't the same as DLT. DLT can serve as a very useful technology tool that can help certain transactions and helping in holding certain transactions. It is very, very separate from crypto. So when we talk about digital we can focus on those digital assets that really can help the development of the underlying infrastructure in digital issuance, digital safekeeping, digital capital raising, tokenisation, exchange, settlement, custody, you can really revolutionise things here, but it needs to be done in a robust, safe way. And, of course, it needs to be done importantly in response to customer demand. So we are very closely working with the market and exploring how would they want to see things develop. And that is our mission, because our mission is to be an infrastructure provider, and to facilitate access to a broad universe of asset classes. So we are looking at the market and the market participants, we're seeing what the problem solutions are there. And then what is the best application of DLT, or indeed other digital ways that we can solve some of the solutions. You will have seen that we have also announced a strategic partnership with Microsoft. And as part of that, we have agreed to explore development of digital market infrastructure that will be based on the cloud. And our goal here is really to transform how market participants interact and how capital marktes run and how we can bring more efficiency into that process.
Brandon 15:04
And just out of interest, and this isn't part of the script, but going off track a little bit, where do you think the regulations are on this? Do you think when it comes to the application of more particularly AI, I guess less so emerging crypto or techy assets, but with the rise of AI and so forth, do you think financial services regulation, or particularly the listings regs are up to scratch when it comes to then applying the likes of artificial intelligence?
Darko 15:35
I think regulation is not necessarily about listing regulation, it's the whole framework of how regulation is positioned to service these new assets. And here really, we need to come up with problems, proposed solutions, and then go to the regulators and say, this is how we think it should be done. A lot of the times I hear regulators are not moving fast enough, etc, etc. But it's down to the industry to say, okay, this is what the problem statement looks like, this is what we believe solutions are. And then this is the regulatory framework, which will enable these solutions to happen. So I think that, yeah, regulation needs to happen. But there is a sequence of events here.
Brandon 16:34
Interesting. Now, as well as, of course, disruptive technologies on the rise, the 2020s, and the start of this decade have been particularly turbulent so far, I think it's fair to say with respect to the global pandemic, of course, at the very start. But more recently, we see stagflation and war returning to the continent in the form of the invasion of Ukraine. What are the key risks and opportunities for the listing space given the current state of the macro environment?
Darko 17:05
Well, first and foremost, when war started more than a year ago in Europe, our principal focus was ensuring the safety of our people. So that was the first thing we did. But then we've also looked at, of course, a sanctions regime that has happened. So we've made sure that we have robust procedures in place in order to meet all the sanctions that are happening. And that really is important because it protects the whole ecosystem, because we are doing that business. We've said that our exposure as a group to what has happened in terms of our revenue is less than 1%. And we're really well positioned to provide that critical market infrastructure globally. I also think we need to appreciate that we have left a very benign condition, market conditions that have happened before, we are entering a period as you've characterised it, which has all of these unfortunate, negative headwinds, but this is not new. I mean, markets have went through these things before. I'll give you an example, right at the beginning, 1868 is the first year when the company that has the longest tradition of being a listed company has listed. And since 1868, they've seen quite a lot of things. So we have seen these things. Capital Markets have weathered those storms in the past and it is important that we are very well positioned to go through this. And it will of course pass. But it may take time. We don't know how long it's going to take. What is important is that in the interim, financial markets adjust, and as they always do, they will adjust and and carry on.
Brandon 19:04
Well, very positive, that's good to hear. Just a final question, and I have to ask because Guernsey has more listings than any other non-UK jurisdiction globally. Something we're of course very proud of on the island. What role do you think global finance centres such as Guernsey have to play in working with funds and firms to enable successful listings?
Darko 19:28
So I think you're right, I mean, Guernsey is a base for quite a lot of our assurers and contrary to some opinions, they don't go there because it's the easiest way and it's the cheapest and the tax is low. They go there for a variety of reasons. They go there for agility in the regulatory framework. They go there because there are certain things that are beneficial for their shareholders. I think that the island continues to play that role and will continue to play that role for certain insurers. We appreciate many insurers will be onshore and come to the UK and that is fine. They will have their reasons but what is important is that we have that optionality and give optionality to our insurers and then they can choose what is best for them.
Brandon 20:29
Well, brilliant. Thank you very much for your time Darko. It's very nice to have you on the podcast.
Darko 20:33
Thank you.
Brandon 20:34
And it was great to talk through the listing space and how you see the LSE working through the current environment, particularly given the economic headwinds as you outlined, but also the rise of artificial intelligence and other innovative technologies. And thanks also to you for listening. If you enjoyed this discussion, we have a backlog of interviews on the WE ARE GUERNSEY podcast channel, you can check them out by searching for WE ARE GUERNSEY on your preferred podcast platform. We also have links to Darko and the LSe in our show notes so check them out to hear more from them. To find out more about Guernsey and its specialist financial services industry, head over to our website weareguernsey.com We look forward to welcoming you back to the podcast soon. Until then it's goodbye from Guernsey.
Transcribed by https://otter.ai